Wealth inequality

Wealth in America is distributed more unequally than income. While the top 1% of households get about 15% of the income in any given year,1 the top 1% of wealth holders have about 35% of the wealth.

Figure 1 shows that the top 1%’s wealth share has increased since the late 1980s.

Figure 1. Wealth share of the top 1%Households. Wealth = assets minus liabilities. Data source: Jesse Bricker, Alice Henriques, Jacob Krimmel, and John Sabelhaus, “Measuring Income and Wealth at the Top Using Administrative and Survey Data,” 2015, figure 11, using Survey of Consumer Finances data.

Between the mid-1990s and 2007, the wealth share of the top 1% didn’t rise. That was because the housing bubble drove up home values, and hence net worth, for many middle-class Americans. Suppose your only asset is a home worth $200,000 and you owe $120,000 to the mortgage lender. Your wealth, or net worth, is the difference: $80,000. If the home’s value increases to $240,000, your wealth has increased by 50%, from $80,000 to $120,000. As home prices rose from the mid-1990s to the mid-2000s, increases of this magnitude or greater were common among middle-class Americans. This limited the rise in wealth inequality between the top and the middle.2

On the other hand, wealth inequality did increase sharply in the lower half of the wealth distribution during this period. Figure 2 shows average wealth among the middle 20% and among the bottom 40%. For Americans in the middle, many of whom are homeowners, net worth increased significantly beginning in the mid-1990s. For those in the bottom 40%, many of whom don’t own a home, the story was quite different. They experienced no rise at all in wealth.

Figure 2. Average wealth of households in the middle 20% and the bottom 40%Wealth = assets minus liabilities. Data source: Edward N. Wolff, “Household Wealth Trends in the United States, 1962-2013,” Working Paper 20733, National Bureau of Economic Research, 2014, tables 1 and 2, using Survey of Consumer Finances data.

When the housing bubble popped in the late 2000s, the pattern of wealth inequality changed. As figure 2 shows, average wealth among Americans in the middle 20% fell all the way back to below early 1980s levels. Average wealth among the bottom 40% also dropped, though from an already very low level. All of the increase in wealth inequality within the lower half thereby evaporated.

Those at the top also suffered wealth losses, due to the fall in stock prices during the 2008-09 economic crash. But since then stock prices have risen sharply while home prices haven’t, so wealth inequality between the top and everyone else has increased.3

There is a different data series on wealth inequality in the United States that goes back much farther in time and also allows comparison with several other rich countries. According to these data, shown in figure 3, the top 1%’s share of the wealth decreased in the first half of the twentieth century, then was flat until around 1980, and since then has increased a bit.

The three other countries — France, Sweden, and the UK — experienced a similar pattern. But while they began with more wealth inequality than the US, their decline was sharper and it continued for longer, until 1970. As a result, America’s richest 1% today hold a larger share of the country’s wealth than their counterparts in these other nations. The OECD has data for more countries around 2010. Those data, shown in figure 4, suggest America may have the most top-end wealth inequality of any rich nation.4